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Seven Reasons Why Aug. 2 Isn't the End of the World

Washington is currently borrowing about 43 cents out of every dollar it spends, and is close to maxing out its credit limit. Current law says Uncle Sam cannot borrow more than $14.3 trillion.

A few months back, the Obama Administration demanded that Congress increase the national credit line by $2.5 trillion by May 16, or else, it warned, the United States would default on its debts, causing an “economic Armageddon.” ($2.5 trillion is just enough to avert the need for another debt hike until after the 2012 election.)

When May 16 came and went, and nothing happened, the Obama team set a new “Armageddon” date: August 2.

Unfortunately, a lot of folks in Washington and Wall Street – including some who should know better — seem to be taking this new deadline at face value. While it’s true that, at some point, the government will hit the ceiling and have to reduce spending by about 40 percent, exactly when that day will arrive, nobody knows for sure. And don’t believe anyone who tells you he does know. “No man knows the day or the hour.”

Maxed Out Day could be August 2. It could be August 22. Or it could be in September. The exact date really depends on whether the President is willing to tap certain reserves available to him, or decides to force a political crisis.

I cannot tell you when Maxed Out Day will be. But I can – and will — prove to you that August 2 doesn’t have to be it. Before I do so, here are three key numbers to remember:

1) We are projected to take in between $170 billion and $200 billion in August, in revenues.

2) We will likely spend about $300 billion in August.

3) Therefore, we face a gap of somewhere between $100 billion and $130 billion.

So what will happen, come the August 2 deadline?

1. The U.S. will still be able to pay its creditors (i.e., it won’t default). There’s no reason why the government needs to stop paying its creditors. Ever. Debt service payments (interest on the national debt) will only cost $30 billion in August. As I’ve noted, we will take in $170-200 billion.

2. Social Security checks will still go out. On July 12, President Obama suggested that, come August 2, he might not be able to send out the 50 million Social Security checks slated to go out in August. But since those checks only cost $50 billion, compared to $170-200 billion coming in, there will obviously be sufficient funds to mail them.

3. Medicare and Medicaid payments will go out as usual. Experts predict we’ll owe about $50 billion to doctors and hospitals. Well, with $170-200 billion coming in, granny will get her health care, just like always.

4. Veterans and active-duty military personnel will get paid. Paying our veterans will cost about $3 billion. Ditto our soldiers in uniform. That $6 billion is chump change by DC standards.

So that’s a total bill of $136 billion, easily covered by the $170-200 billion we’ll take in. Of course, we won’t be able to afford everything the government currently spends on. The Departments of HUD, Transportation, Commerce, Energy, and Education, for example, may have to take a pause while Congress works out a deal with the President. But is that really “the end of the world”?

Earlier, I mentioned the reserve funds the President can tap. As the Senate Finance Committee Republican staff helpfully point out:

5. The Treasury Department has $5 billion sitting idle in an account at the Federal Reserve. It can tap this account any time.

6. Treasury has close to $100 billion in mortgage-backed securities it can sell. It bought these securities during the financial crisis to bail out housing markets. Just last month, it sold $10.6 billion worth.

Finally, there’s a seventh reason why August 2 needn’t be anything more than another pleasant summer day in America.

7. Congress can pass the Cut Cap Balance Act (H.R.2560). This bill would give President Obama his $2.5 trillion debt increase — in exchange for three things: 1) $111 billion in cuts this coming year, 2) tight spending caps for the coming decade, and 3) congressional approval of a strong Balanced Budget Amendment to the Constitution. By strong, I mean one that makes it much harder for Congress to spend more than a fixed share of the economy, raise taxes, or add to the debt.

The Cut Cap Balance Act — which the House is slated to vote on today — would make this the last debt ceiling hike, ever. Unfortunately, President Obama has threatened to veto it. If he does, whose fault will it be when Maxed Out Day really does arrive?

As Congress approaches the debt ceiling debate, conservatives in both chambers should look for outside-the-box approaches to address federal spending. It's simply not enough to make cuts to nondefense discretionary spending, which, over the next ten years, represents less than 13 percent of all federal outlays. Mandatory spending, or direct spending, however, represents nearly 65 percent of outlays and is what is largely driving deficits higher.

FreedomWorks today echoed the position of the House Freedom Caucus on raising the debt ceiling and called on Congress to address federal spending and the budget deficit, which is projected to exceed $9.4 trillion over the next ten years.

As part of the Bipartisan Budget Act of 2015 that was enacted in November of that year, the debt ceiling was suspended until March 15, 2017. As of March 16, 2017, the debt ceiling is now back in place, requiring Congress to take action to raise it by some time in Fall (likely October or November).

FreedomWorks is happy to announce that the Debt Limit Control and Accountability Act, H.R. 1529, introduced by Rep. Mark Sanford (R-S.C.) was selected as the Bill of the Month for May. The bill is co-sponsored by House Freedom Caucus Chairman Rep. Mark Meadows (R-N.C.) and was referred to the House Ways and Means Committee. It would put spending restrictions in place to hold our government accountable regarding financial decisions.

As one of over 6.9 million FreedomWorks activists nationwide, I urge you to call your representative and senators and demand that they vote against the disastrous “Bipartisan Budget Act”. Because this bill not only spends well in excess of the budget caps but also suspends the debt ceiling without any major spending reforms, this vote will be weighted double on our Online Congressional Scorecard.

Tick-tock, the debt ceiling deadline is fast approaching, leading, as ever, to the fevered warnings of default from the advocates of endless spending in and around the Beltway. It can't be said often enough: default on the national debt isn't going to happen. In fact, it's all but impossible.

With Paul Ryan still sitting squarely on the fence about whether or not he will run for Speaker of the House, the Republican leadership elections still remain largely up in the air. There has so far been a troubling inability of the conference to identify a suitable candidate who embodies the values that are important to an open congressional process, and who could garner enough support to actually win the election.

As one of our more than 6.9 million FreedomWorks activists nationwide, I urge you to contact your representative today and ask him or her to support Representative Tom McClintock’s Default Prevention Act, H.R. 692. This simple, common-sense piece of legislation would remove any possibility of defaulting on our national debt in the event that we reach our statutory debt limit.

The ever-shifting horizon on when the federal government is scheduled to reach its borrowing limit has most recently been set at November 3rd, just days after John Boehner is scheduled to resign his office. What this means is that no new leadership will save us from yet another increase in the debt ceiling, although there will always be a principled few who will want to resist.

Treasury Secretary Jack Lew is reporting that Congress only have until November 5th before the federal government hits its borrowing limit, an earlier date than most analysts were predicting. This can be expected to prompt the perennial debate about the nation’s debt and what, if anything, can be done about it.